Mean Street: The Coming Obama Jobs Disaster

By Evan Newmark

It’s tough to be too gloomy the day after the Dow industrials soared another 3%, but spare a moment’s thought for the unemployed.

It’s bad for them and will get worse. Unemployment will easily hit 10% by year end.

Of course, President Obama and his advisers don’t see it that way. They forecast unemployment topping out at around 9%. But why trust them? Of Obama’s 22 Cabinet level bigwigs, including the biggest wig himself, none has had a sustained private-sector career.

They’re government lifers. And they are living in a fantasy world of think tanks and policy papers where government spending magically leads to business hiring. Unfortunately, it doesn’t work that way.

Soon enough, Obama’s dreams of job creation will turn into an unending nightmare of double-digit unemployment. Look at the numbers. Thursday’s jobless claims hit a 26-year high. This morning’s jobs numbers were predictably awful. The economy lost 663,000 jobs in March, and unemployment jumped to 8.5%.

Ask anybody running a business. They will tell you they expect the job market to get even worse. After all, much of what any CEO does is think about hiring and firing. And lately, CEOs are pretty focused on the firing part of the equation.

In my career, I have fired dozens of people. These are terrible, gut-wrenching decisions that keep you up at night. They also are the most necessary. Unlike governments, businesses have to turn a profit. That is why thousands of American bosses are firing millions of their workers. Not because they want to. They have to. No profit and you are out of business. Then everyone’s out of work.

The reluctance to fire in hard times leads inevitably to a reluctance to hire once the economy picks up. Even when the profits are rolling in, you still need a compelling reason to hire.

Unfortunately, Obama has given CEOs plenty of reasons to fire and none to hire.

If you’re a U.S. technology giant, why deal with H-1B visa headaches and pricey U.S. workers? Move the jobs offshore. That’s what IBM is doing with about 5,000 of them.

If you’re a pharmaceutical company, why invest in a new R&D facility? With the threats from generic drugs, it is easier to simply cut the work force. Look at the Merck-Schering-Plough and Pfizer-Wyeth deals. That’s 40,000 jobs gone.

If you’re a Wall Street bank, why do anything until the bonus brouhaha passes and the TARP funds are repaid? Better to conserve cash. According to Mayor Mike Bloomberg, 46,000 New York City finance jobs will disappear by 2010.

Nowadays, it is difficult to find any industry that isn’t terrified by Washington. Hotels and casinos? Tobacco? Oil and gas? Utilities? They all are scared to death. Or at least they are pretending to be as they shovel money at their K Street lobbyists.

Undoubtedly there are pockets of the economy that will benefit from the trillion dollars of Obama’s largesse. But whether it is renewable energy or public infrastructure, they are smallish pockets of private-sector job creation.

The American Wind Energy Association claims to employ 50,000 workers. Not bad–but that is a lot of new windmills to offset the bankruptcy of Circuit City, which took out 34,000 jobs.

That leaves the creation of government jobs–and that is exactly where the stimulus is going. Good luck paying for all those pensions.

The Obama team has an idyllic vision of thousands of America’s small and midsize businesses feeding off government handouts. Some will feed, but some will starve and others will choke on higher state taxes, such as those proposed in the latest New York State budget.

Few long-term private sector jobs will be created. Certainly not the 3.5 million new jobs Obama has promised by the end of next year.

Businesses prosper when industries prosper and industries prosper when they can turn a profit.

This is the real failure of the Obama economic team. It is as hard for a former community organizer to understand profits as it is for a Fortune 500 CEO to understand social justice. Sadly, for the unemployed, creating jobs has everything to do with profits and very little to do with social justice.

Comments (5 of 180)

It doesn't matter if the unemployment problem started with the Bush Administration. Obama was elected on the promise of fixing it. As a result, this is now Obama's problem. He is on T.V. talking about Health Reform and not the people who are struggling because they are out of work and what he is doing about it. Because of this, he will face a lot of opposition during the next election. he needs to stop talking and start doing. He got the job and now it is time to start fulfilling his promises instead of continuing to talk about them.

9:08 pm October 22, 2009

Bill Taylor wrote :

Since becoming unemployed, I have all the time in the world. I can't wait for election day so that I can go and vote against the Democrats including Obama. Talk is cheap. Its frustrating to see him on T.V. everyday talking about health reform instead of jobs.

Gosh, Steven Chu is going to be disappointed to hear that he did not in fact spend eleven years at Bell Labs and then another ten at the private Stanford university, where he won the Nobel Prize. Gary Locke, Hillary Clinton, Tom Vilsack, and Janet Napolitano will all be extremely disappointed to learn that they never practiced law for a combined five decades. Arne Duncan will be particularly disappointed to learn that he, in fact, did not play professional basketball in Australia.

I also feel sure that the four former Governors, Locke, Vilsack, Napolitano, and Sebelius, might take issue with your characterization of them as "living in a fantasy world of think tanks and policy papers", as would the former mayor of Dallas, Ron Kirk. I feel sure that Eric Shinseki, the four-star general and former chief of staff of the Army who lost part of a foot in Vietnam, would do so.

Honestly, Mr. Newmark. Is this intended to be anything but a partisan smear? You have not done the slightest fact-checking on this article, and in particular, to refer to Eric Shinseki as a "government lifer" is ridiculous.

10:17 am August 7, 2009

Wrong again wrote :

The new jobless rate just released is down this month for the first time in a long time. Should we still be as scared as you want us to be?

5:45 pm May 14, 2009

Uncle Sam wrote :

As early as 1992, alarm bells were going off on the threat Fannie and Freddie posed to our financial system and our economy. Intervention at any point could have staved off today's crisis. But Democrats in Congress stood in the way.

As the president recently said, Democrats have been "resisting any efforts by Republicans in the Congress or by me . . . to put some standards and tighten up a little on Fannie Mae and Freddie Mac."

No, it wasn't President Bush who said that; it was President Clinton, Democrat, speaking just last week.

Interesting, because it was his administration's relentless focus on multiculturalism that led to looser lending standards and regulatory pressure on banks to make mortgage loans to shaky borrowers.

Freddie and Fannie, backed by an "implicit" taxpayer guarantee, bought hundreds of billions of dollars of those subprime loans.

The mortgage giants, whose executive suites were top-heavy with former Democratic officials (and some Republicans), worked with Wall Street to repackage the bad loans and sell them to investors.

As the housing market continued to fall in 2007, subprime loan portfolios suffered major losses. The crisis was on — though it was 15 years in the making.

Democrats Blocked Reform

Just as Republicans got blamed for Enron, WorldCom and other early-2000s scandals that were actually due to the anything-goes Clinton era, the media are now blaming them for the mortgage meltdown.

After Treasury Secretary Lawrence Summers warned Congress in 1999 of the "systemic risk" posed by Fannie and Freddie, Congress held hearings the next year.

But nothing was done. Why? Fannie and Freddie had donated millions to key congressmen and radical groups, ensuring no meaningful changes would take place.

"We manage our political risk with the same intensity that we manage our credit and interest rate risks," Fannie CEO Franklin Raines, a former Clinton official and current Barack Obama adviser, bragged to investors in 1999.

In November 2000, Clinton's HUD hailed "new regulations to provide $2.4 trillion in mortgages for affordable housing for 28.1 million families." It made Fannie and Freddie take part in the biggest federal expansion of housing aid ever.

Soon after taking office, Bush had his hands full with the Clinton recession and 9/11. But by 2003, he proposed what the New York Times called "the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago."

The plan included a new regulator for Fannie and Freddie, one that could boost capital mandates and look at how they managed risk.

Even after regulators in 2003 uncovered a scheme by Fannie and Freddie executives to overstate earnings by $10.6 billion to boost bonuses, Democrats killed reform.

"Fannie Mae and Freddie Mac are not facing any kind of financial crisis," said Rep. Frank, then-ranking Democrat on the Financial Services Committee.

North Carolina Democrat Melvin Watt accused the White House of "weakening the bargaining power of poorer families and their ability to get affordable housing."

In 2005, then-Fed Chairman Alan Greenspan told Congress: "We are placing the total financial system of the future at substantial risk."

McCain Urged Changes

That year, Sen. John McCain, one of three sponsors of a Fannie-Freddie reform bill, said: "If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole."

Sen. Harry Reid — now Majority Leader — accused the GOP of trying to "cripple the ability of Fannie Mae and Freddie Mac to carry out their mission of expanding homeownership."

The bill went nowhere.

This year, the media have repeated Democrats' talking points about this being a "Republican" disaster. Well, McCain has repeatedly called for reforming the mortgage giants. The White House has repeatedly warned Congress. This year alone, Bush urged reform 17 times.

Some GOP members are complicit. But Fannie and Freddie were created by Democrats, regulated by Democrats, largely run by Democrats and protected by Democrats.

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